Russia and Ukraine are on the brink of a political crisis over gas prices that symbolises the widening gulf between the two former Soviet countries.

The state-controlled Russian gas monopoly, Gazprom, is threatening to cut off flows on January 1 if Ukraine does not agree to pay quadrupled prices for the energy that comprises a third of its needs.

Ukraine currently buys Russian gas for its homes and factories at a heavily subsidised $50 (£29) per 1,000 cubic metres but a disgruntled Moscow wants to raise the cost to $230, in line with world prices.

Kiev has retaliated by threatening to increase tariffs for gas transit to western Europe and raise the rent paid by the Russian navy to keep its Black Sea fleet in the Ukrainian port of Sevastopol.

The dispute is just one of a number of disagreements between the two countries that have hardened since Ukraine's "orange revolution" wrenched it from Moscow's influence and set it on a course to European integration last winter.

Observers say the Russian president, Vladimir Putin, is flexing his muscles as his country increasingly adopts the role of a "natural resources superpower" that conducts foreign policy though control of energy. Both have promised to do their utmost to halt any disruption of gas supplies to Europe through Ukrainian pipelines.

However, at the weekend Gazprom staged an ostentatious practice run for turning off the taps that provide supplies to Ukraine itself.

In a television interview, the company's deputy chairman, Alexander Medvedev, said it was prepared to go to the international arbitration court in Stockholm if Kiev resorted to siphoning off gas.

"Eighty percent of our exports pass through Ukraine," he said. "Apparently there is some blackmail, or pirate-like behaviour on the part of our Ukrainian colleagues. However we live in the civilised world, not the jungle, so I hope that reason will prevail."

After weeks of on-off talks, negotiations over the price were conducted in Moscow yesterday but no resolution was found. The Kremlin argues the new price is purely economic and its neighbour no longer has a right to demand cheap energy supplies for steelmaking and other industries that compete with Russia's own.

Ukraine's Naftogaz said yesterday that it produced enough gas to continue supplying homes, but factories in the east could be hit hard. Last week President Viktor Yushchenko criticised Gazprom for its "irresponsible approach", calling for a gradual transition to higher prices.

The Russian foreign minister, Sergei Lavrov, denied yesterday that raising the fee was a political act. But recent deals with other former Soviet countries such as Belarus have kept prices low, raising suspicions that Ukraine is being punished for its push to join the EU and Nato.

Alexander Lebedev, a Russian MP critical of the Kremlin's hardline stance, said brinkmanship over prices risked angering Russia's western European partners ahead of it taking over the G8 presidency on January 1. "Russia's stance is irrational," he said. "We are not reprimanding the orange leaders - we are only helping them consolidate their support by providing a foreign threat with a gas weapon."

However, most analysts agree Ukraine's Soviet-style economy must reform to compete in European markets without the prop of cheap energy supplies.